São Paulo Governor Pans Brazil’s Key Interest Rate Hike

São Paulo governor José Serra José Serra, the governor of the Southeastern state of São Paulo and one of the Brazilian leaders tipped to dispute the presidency in 2010 warned about the possibility of an economic downturn when President Luiz Inácio Lula da Silva concludes his second mandate.

Serra, interviewed by Brazil’s largest daily, Folha de São Paulo, said that “higher interest rates tend to have a negative impact on the country’s current account and the balance of payments since it up-values the real even more against the US dollar thus making exports dearer and imports cheaper.”

Following three years of cuts or hold on, the Brazilian Central Bank Monetary policy committee, Copom, decided unanimously to increase the basic Selic rate half a percentage point to 11.75%.

“This anticipates a negative path for our economy in the future,” added Serra who lately has improved relations with President Lula and does not refer to his administration but rather to the “federal government.”

Serra, who belongs to the main opposition party PSDB, Brazilian Social Democracy Party, lost to Lula in the 2002 presidential election. He was Minister of Health under President Fernando Henrique Cardoso.

“When you’re in government, you must have a kind of strabismus, one eye set at present, one eye on the future. We must look ahead, and with the current interest rates, and possibly higher, we’re going to make paying government debt ever more complicated.”

Serra added he believed the situation most probably would happen when Lula term comes to an end, since the president is aiming to leave with the highest possible support ratings, hoping to return in 2014.

Current interest rate policy “will weaken our trade balance, will demand greater outlays to pay creditors and could de-hydrate the current 5% economic growth cycle” insisted the governor of Brazil’s powerhouse.

Mercopress

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